Posts Tagged ‘RendezVous2013’

For bodily injury claim settlements in Europe, the trend is shifting away from lump sums and towards annuity-type settlements, which come with risks related to longevity, inflation and hedging. Insurance companies with significant casualty business may see their risk profiles transform over time to be more like pensions funds - but without working members and with even longer lasting liabilities. While the insurance industry is beginning to understand the implications of this move to annuity settlements, it does not have a clear understanding of the implications for an increasingly important regulatory balance sheet metric: Risk Margin.

With Solvency II and similar regimes in place and still on the horizon in some countries, and the continuing evolution of rating agency requirements, the last decade has seen the (re)insurance industry fully embrace the practice of enterprise risk management (ERM). As a trusted advisor to (re)insurers globally, Guy Carpenter has observed firsthand what it takes to implement ERM successfully. An ERM program’s effectiveness may be enhanced with the benefit of adherence to a set of simple tenets.

While markets in some developed countries are demonstrating signs of recovery from the economic uncertainty of the last few years, and the growth in some developing markets is slowing, emerging countries remain attractive for insurance companies seeking opportunities for profitable growth. Latin America is an especially significant emerging region - it is rich in natural resources, geographically close to the United States and all of its governments are democratic. Before entering and engaging in business in this region, it is necessary for companies to be familiar with the economic environment, political situation, regulations, trends and risks that may be encountered.

Faced with an abundance of excess capital, negligible growth in global reinsurance spend and the pricing outlook continuing to soften, one of the biggest challenges for reinsurers is deciding how to deploy excess capital to generate a return that meets or exceeds the expectations of shareholders.

David Priebe, Vice Chairman, Guy Carpenter, comments on the direct impact the new capital is having on reinsurance pricing. “The impact of the new capital has been most dramatic in the US during 2013. For the first time, the ILS market offered prices comparable to or lower than those of the established reinsurers, ending the general stability and consensus of post-Katrina catastrophe pricing, especially in Florida. Strong appetite tightened spreads for US hurricane catastrophe bonds forcing the traditional reinsurers to react by cutting Florida risk-adjusted renewal prices by around 15 percent at the June 1 renewal. It was a tipping point for the reinsurance industry.”

Victoria Carter, Vice Chairman of International Operations, Guy Carpenter, discusses how current market conditions are influencing reinsurance buying strategies in this GC Capital Ideas videocast. ”The reinsurance buying decision is moving higher up the chain of command, often to the C-Suite floor. Here the reinsurance debate is as much about capital optimization as it is about protection. Indeed, reinsurance is seeing an enhanced and more sophisticated role as a form of substitute capital and this is providing opportunities to soak up some of the recent flood of new capacity.”

Richard Booth, Vice Chairman, Guy Carpenter, considers where opportunities for growth might lie in today’s market. Both emerging and mature risks afford such opportunities. “Take catastrophe risk,” he said. “A common view is that this is a saturated commodity market, yet between 1970 and 2012 70 per cent of total global economic losses from natural catastrophes were not insured amounting to US$1.7 trillion. The gap between economic and insured catastrophe losses continues to widen.” He added: “Elsewhere, new risks such as cyber risk, renewable energy, food and water security, urbanization, growing prosperity and longevity to name but a few present opportunities and gaps that can be filled by insurers and reinsurers.”

Alex Moczarski, President and CEO, Guy Carpenter, provides concluding remarks at the Guy Carpenter press briefing at the Monte Carlo Rendez-Vous in this GC Capital Ideas videocast. He said “Market conditions for the remainder of the year and the January 1, 2014 renewal will be influenced by loss activity. The influx of new capacity will also continue to exert pressure on market conditions, especially in the USA. Consequently, in the absence of further significant catastrophe losses the market trends observed in recent months will continue or accelerate.”

In its sixth annual press briefing held at the Reinsurance Rendez-Vous 2013 in Monte Carlo, Guy Carpenter & Company, LLC, the leading global risk and reinsurance specialist and member of Marsh & McLennan Companies (NYSE: MMC), considered the impact of new capacity on current market conditions and explored where the opportunities exist for profitable growth in such an environment.